**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**











**FORM
      10-Q**





**x**
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





**For
      the quarterly period ended March 31, 2007**





**OR**





**o**
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





**000-31083**


**(Commission
      File Number)**





**MILLENNIUM
      CELL INC.**


**(Exact
      Name of Registrant as Specified in Its Charter)**








**Delaware**
            **22-3726792****(State
                or Other Jurisdiction of**
            **(I.R.S.
                Employer****Incorporation
                or Organization)**
            **Identification
                Number)**





**One
      Industrial Way West,**


**Eatontown,
      New Jersey 07724**


**(Address
      of Principal Executive Offices) (Zip Code)**





**(Registrant's
      telephone number, including area code) (732) 542-4000**





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes x No o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. (as defined See definition of
      “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the
      Securities Exchange Act of 1934).





Large
                accelerated filer**☐**
            
            Accelerated
                filer**☐**
            
            Non-accelerated
                filerþ





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).            Yes **☐** No **** þ ****


Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date: 55,014,924 shares of Common Stock,
      par
      value $.001, were outstanding on May 11, 2007.
















**MILLENNIUM
      CELL INC.**


**(a
      development stage enterprise)**


**Index**








**PART
      I - FINANCIAL INFORMATION**





**Page**Item
                1.
            Financial
                Statements (Unaudited)Consolidated
                Balance Sheets - March 31, 2007 and December 31, 2006
            1Consolidated
                Statements of Operations - Three months endedMarch
                31, 2007 and 2006 and cumulative amounts from inception
            2Consolidated
                Statements of Cash Flows -Three months ended March 31, 2007 and
                2006
            3and
                cumulative amounts from inceptionConsolidated
                Statements of Stockholders’ Equity - Three months ended March 31,
                2007
            4Notes
                to Consolidated Financial Statements - March 31, 2007
            5Item
                2.
            Management's
                Discussion and Analysis of Financial Condition and Results of
                Operations
            11Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            16Item
                4.
            Controls
                and Procedures
            17**PART
                II - OTHER INFORMATION**Item
                1.
            Legal
                Proceedings
            18Item
                1A.
            Risk
                Factors
            18Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            18Item
                3.
            Defaults
                Upon Senior Securities
            18Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            18Item
                5.
            Other
                Information
            18Item
                6.
            Exhibits
            18
















Unless
      the context otherwise requires, all references to “we,” “us,” “our” and the
“Company” include Millennium Cell Inc., and its wholly-owned subsidiary, Gecko
      Energy Technologies, LLC.





Unless
      the context otherwise requires, all references herein to our Series A
      Convertible Preferred Stock, Series B Convertible Preferred Stock and Series
      C
      Convertible Preferred Stock are references to our Series A2-0 Convertible
      Preferred Stock, Series A2-1 Convertible Preferred Stock, Series B-1 Convertible
      Preferred Stock and Series C2 Convertible Preferred Stock.





**FORWARD-LOOKING
      STATEMENTS**





This
      report contains forward-looking statements (within the meaning of the Private
      Securities Litigation Reform Act of 1995). These forward-looking statements
      reflect our current view about future events and financial performance and
      are
      subject to risks and uncertainties. Statements contained herein that are not
      statements of historical fact may be deemed to be forward-looking information.
      When we use words such as “plan,” “believe,” “expect,” “anticipate,” “on target”
and intend or similar expressions, we are making forward-looking statements.
      Investors should not rely on forward-looking statements because they are subject
      to a variety of risks, uncertainties and other factors that could cause actual
      results to differ materially from our expectations, and we expressly do not
      undertake any duty to update forward-looking statements or to publicly announce
      revisions to any of the forward-looking statements, whether as a result of
      new
      information, future events or otherwise. These factors include, but are not
      limited to, the following: (i) the cost and timing of development and market
      acceptance of, and the availability of components and raw materials required
      by,
      a hydrogen battery technology and hydrogen delivery system, (ii) the cost and
      the commercial availability of the quantities of raw materials required by
      the
      hydrogen fuel storage and delivery systems, (iii) competition from current,
      improving and alternate power technologies, (iv) our ability to raise capital
      at
      the times, in the amounts and at costs and terms that are acceptable to fund
      the
      development and commercialization of our hydrogen battery technology and
      hydrogen delivery system and our business plan, (v) our ability to protect
      our
      intellectual property, (vi) our ability to achieve budgeted revenue and expense
      amounts, (vii) our ability to generate revenues from the sale or license of,
      or
      provision of services related to, our technology, (viii) our ability to enter
      into agreements with collaborators and strategic partners and the failure of
      our
      collaborators and strategic partners to perform under their agreements with
      us,
      (ix) our ability to generate design, engineering or management services revenue
      opportunities in the hydrogen generation or fuel cell markets, (x) our ability
      to secure government funding of our research and development and technology
      demonstration projects and (xi) other factors discussed under the caption “Risk
      Factors” in our Annual Report on Form 10-K for the year ended December 31, 2006.


















**PART
      I - FINANCIAL INFORMATION**





***Item
      1. Financial Statements (Unaudited).***





**MILLENNIUM
      CELL INC.**


**(A
      DEVELOPMENT STAGE ENTERPRISE)**


**CONSOLIDATED
      BALANCE SHEETS**





**(Unaudited)**


**March
                31,**
            
            **December
                31,****Assets**
            **2007**
            
            **2006**Current
                assets:Cash
                and cash equivalents
            $
            8,021,023
            
            $
            4,358,040Restricted
                cash
            
            407,995
            
            
            174,045Accounts
                receivable - trade
            
            37,500
            
            
            75,000Accounts
                receivable - government
            
            858,819
            
            
            523,878Prepaid
                expenses
            
            134,119
            
            
            133,992Deferred
                financing costs
            
            191,607
            
            
            92,532Total
                current assets
            
            9,651,063
            
            
            5,357,487Property
                and equipment, net
            
            249,763
            
            
            307,257Intangibles,
                net
            
            3,257,785
            
            
            3,280,257Restricted
                cash
            
            617,716
            
            
            846,767Deferred
                financing costs
            
            106,790
            
            
            29,407Security
                deposit
            
            45,676
            
            
            45,676Total
                assets
            $
            13,928,793
            
            $
            9,866,851**Liabilities
                and stockholders’ equity**Current
                liabilities:Accounts
                payable
            $
            371,325
            
            $
            352,480Accrued
                expenses
            
            1,270,648
            
            
            1,016,198Short-term
                portion of refundable grant obligation
            
            —
            
            
            13,197Deferred
                compensation
            
            118,210
            
            
            116,273Deferred
                revenue
            
            197,288
            
            
            113,153Short-term
                portion of redeemable Series C preferred stock, net of discount
              (Note
                6)
            
            3,378,931
            
            
            2,356,375Convertible
                unsecured debentures (Note 6)
            
            149,988
            
            
            449,988Total
                current liabilities
            
            5,486,390
            
            
            4,417,664Redeemable
                Series C preferred stock, net of discount (Note 6)
            
            —
            
            
            2,356,375Convertible
                unsecured debenture, net of discount (Note 6)
            
            5,030,986
            
            
            —Debenture
                related liabilities (Note 6)
            
            1,047,021Refundable
                grant obligation
            
            143,132
            
            
            143,132Commitments
                and contingenciesStockholders
                equity:Series
                A preferred stock, $.001 par value; 1,694,724 authorized shares,
                293,874issued
                and outstanding as of March 31, 2007 andDecember
                31, 2006
            
            4,527,417
            
            
            4,527,417Series
                B preferred stock, $.001 par value; 1,539,000 authorized shares,
                71,429issued
                and outstanding as of March 31, 2007 and December 31, 2006
            
            1,074,620
            
            
            1,090,773Common
                stock, $.001 par value; authorized 70,000,000 shares and
                53,836,771and
                51,401,215 shares issued and outstanding as of March 31, 2007 andDecember
                31, 2006, respectively
            
            53,836
            
            
            51,401Additional
                paid-in capital
            
            107,479,531
            
            
            105,486,561Deficit
                accumulated during development stage
            
            (110,914,140
            )
            
            (108,206,472
            )Total
                stockholders’ equity
            
            2,221,264
            
            
            2,949,680Total
                liabilities and stockholders’ equity
            $
            13,928,793
            
            $
            9,866,851






1








**See
      notes to financial statements**





**MILLENNIUM
      CELL INC.**


**(A
      DEVELOPMENT STAGE ENTERPRISE)**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(Unaudited)**





**Three**
            
            **Three****Months**
            
            **Months**
            
            **Cumulative****Ended**
            
            **Ended**
            
            **Amounts****March
                31**
            
            **March
                31,**
            
            **From****2007**
            
            **2006**
            
            **Inception**Revenue
            $
            67,700
            
            $
            69,882
            
            $
            2,091,237Cost
                of revenue
            
            61,595
            
            
            69,882
            
            
            1,959,697Gross
                margin
            
            6,105
            
            
            —
            
            
            131,540Product
                development and marketing
            
            969,718
            
            
            905,187
            
            
            27,524,753General
                and administrative
            
            795,016
            
            
            1,018,738
            
            
            30,302,058Restructuring
                expense
            
            —
            
            
            —
            
            
            104,982Non-cash
                charges (Note 5)
            
            216,872
            
            
            190,586
            
            
            32,508,959Depreciation
                and amortization
            
            225,965
            
            
            137,187
            
            
            3,710,971Research
                and development
            
            101,227
            
            
            195,983
            
            
            10,199,756Total
                operating expenses
            
            2,308,798
            
            
            2,447,681
            
            
            104,351,479Loss
                from operations
            
            (2,302,693
            )
            
            (2,447,681
            )
            
            (104,219,939
            )Interest
                expense, net
            
            (404,975
            )
            
            (161,832
            )
            
            (5,156,928
            )Equity
                in losses of unconsolidatedsubsidiary
            
            —
            
            
            (53,300
            )
            
            (1,190,900
            )Loss
                before income taxes
            
            (2,707,668
            )
            
            (2,662,813
            )
            
            (110,567,767
            )Benefit
                from income taxes
            
            —
            
            
            —
            
            
            1,804,508Net
                Loss
            
            (2,707,668
            )
            
            (2,662,813
            )
            
            (108,763,259
            )Preferred
                stock dividends
            
            (18,750
            )
            
            —
            
            
            (63,134
            )Preferred
                stock amortization
            
            —
            
            
            —
            
            
            (2,150,881
            )Net
                loss applicable to common stockholder
            $
            (2,726,418
            )
            $
            (2,662,813
            )
            $
            (110,977,274
            )Loss
                per share - basic and diluted
            $
            (0.05
            )
            $
            (0.06
            )
            $
            (3.30
            )Weighted
                average number of shares outstanding
            
            53,200,308
            
            
            46,959,687
            
            
            33,626,655








See
      notes
      to financial statements








2





**MILLENNIUM
      CELL INC.**


**(A
      DEVELOPMENT STAGE ENTERPRISE)**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(Unaudited)**





**Three
                months**
            
            **Three
                months**
            
            **Cumulative****Ended**
            
            **Ended**
            
            **Amounts****March
                31**
            
            **March
                31**
            
            **From****2007**
            
            **2006**
            
            **Inception****Operating
                activities**Net
                loss
            $
            (2,707,668
            )
            $
            (2,662,813
            )
            $
            (108,763,259
            )Adjustments
                to reconcile net loss to net cash used in operation
                activitiesDepreciation
                and amortization
            
            225,965
            
            
            137,187
            
            
            3,710,971Amortization
                of discount on unsecured debentures and preferred stock
            
            170,189
            
            
            54,227
            
            
            2,958,352Amortization
                of deferred financing costs
            
            64,889
            
            
            30,228
            
            
            1,575,663Non-cash
                interest charges
            
            —
            
            
            133,260
            
            
            712,288Beneficial
                conversion feature
            
            77,000
            
            
            35,000
            
            
            2,236,082Losses
                on investment in unconsolidated subsidiary
            
            —
            
            
            53,300
            
            
            1,190,900Non-cash
                charges
            
            216,872
            
            
            190,586
            
            
            32,508,959Changes
                in operating assets and liabilities:Accounts
                receivable
            
            (297,441
            )
            
            (74,697
            )
            
            (896,319
            )Prepaid
                expenses and other assets
            
            (127
            )
            
            132,384
            
            
            (179,794
            )Accounts
                payable and accrued expenses
            
            231,799
            
            
            (249,755
            )
            
            2,656,964Deferred
                income
            
            84,135
            
            
            —
            
            
            2,597,276Net
                cash used in operating activities
            
            (1,934,387
            )
            
            (2,221,093
            )
            
            (59,691,917
            )**Investing
                activities**Purchase
                of property and equipment
            
            —
            
            
            —
            
            
            (2,885,446
            )Patent
                registration costs
            
            (143,188
            )
            
            (51,762
            )
            
            (1,245,695
            )Investment
                in affiliate
            
            —
            
            
            (520,484
            )
            
            (1,163,539
            )Acquisition
                of Gecko, net of cash acquired
            
            
            
            
            
            
            
            (856,078
            )(Increase)/decrease
                in restricted cash
            
            (4,899
            )
            
            262,964
            
            
            (1,025,710
            )Net
                cash used in investing activities
            
            (148,087
            )
            
            (309,282
            )
            
            (7,176,468
            )**Financing
                activities**Proceeds
                from sale of common stock
            
            —
            
            
            —
            
            
            39,394,207Underwriting
                and other expenses of initial public offering
            
            —
            
            
            —
            
            
            (3,669,613
            )Proceeds
                from issuance of debentures
            
            6,000,000
            
            
            —
            
            
            27,428,806Proceeds
                from redeemable Series C preferred stock
            
            —
            
            
            —
            
            
            10,000,000Proceeds
                from Series B preferred stock
            
            —
            
            
            —
            
            
            1,250,000Deferred
                financing costs
            
            (241,346
            )
            
            —
            
            
            (1,523,002
            )Capital
                lease obligation payments
            
            —
            
            
            (6,173
            )
            
            (86,184
            )Payments
                from capital contribution
            
            —
            
            
            —
            
            
            (400,000
            )Proceeds
                from capital contribution
            
            —
            
            
            —
            
            
            500,000Payment
                of note payable
            
            —
            
            
            —
            
            
            (250,000
            )Series
                B dividends paid
            
            —
            
            
            —
            
            
            (44,384
            )(Payments)/proceeds
                from grant, net
            
            (13,197
            )
            
            (49,611
            )
            
            143,132Proceeds
                from sale of preferred stock
            
            —
            
            
            —
            
            
            2,146,446Net
                cash provided by financing activities
            
            5,745,457
            
            
            (55,784
            )
            
            74,889,407Net
                increase (decrease) in cash and cash equivalents
            
            3,662,983
            
            
            (2,586,159
            )
            
            8,021,023Cash
                and cash equivalents, beginning of period
            
            4,358,040
            
            
            11,675,877
            
            
            —Cash
                and cash equivalents, end of period
            
            8,021,023
            
            
            9,089,718
            
            
            8,021,023





See
      notes
      to financial statements


Supplemental
      cash flow information


Please
      see note 8 for more information









3








**MILLENNIUM
      CELL INC.**


**(A
      DEVELOPMENT STAGE ENTERPRISE)**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY**


**(Unaudited)**





**Additional**
            
            
            
            
            
            
            
            **Total****Common
                Stock**
            
            **Paid-in**
            
            **Series
                A**
            
            **Series
                B**
            
            **Accumulated**
            
            **Stockholders’****Shares**
            
            **Amount**
            
            **Capital**
            
            **Preferred**
            
            **Preferred**
            
            **Deficit**
            
            **Equity**Balance
                at December 31, 2006
            51,401,215
            
            $
            51,401
            
            $
            105,486,561
            
            $
            4,527,417
            
            $
            1,090,773
            
            $
            (108,206,472
            )
            $
            2,949,680Issuance
                of common stock from conversion of debentures and Series C preferred
                stock
            1,840,210
            
            
            1,840
            
            
            1,724,160
            
            
            —
            
            
            —
            
            
            —
            
            
            1,726,000Beneficial
                conversion feature on private placement transactions
            —
            
            
            —
            
            
            77,000
            
            
            —
            
            
            —
            
            
            —
            
            
            77,000Issuance
                of stock for BOD compensation
            4,461
            
            
            4
            
            
            4,546
            
            
            —
            
            
            —
            
            
            —
            
            
            4,550Issuance
                of common stock for 401(k)
            99,485
            
            
            100
            
            
            93,418
            
            
            —
            
            
            —
            
            
            —
            
            
            93,518Issuance
                of restricted stock for merit awards
            491,400
            
            
            491
            
            
            (491
            )
            
            —
            
            
            —
            
            
            —
            
            
            —Stock
                compensation expense
            —
            
            
            —
            
            
            92,173
            
            
            —
            
            
            —
            
            
            —
            
            
            92,173Deferred
                compensation plan
            —
            
            
            —
            
            
            4,761
            
            
            —
            
            
            —
            
            
            —
            
            
            4,761Warrant
                adjustment
            —
            
            
            —
            
            
            16,153
            
            
            —
            
            
            (16,153
            )
            
            —
            
            
            —Series
                B preferred dividends
            —
            
            
            —
            
            
            (18,750
            )
            
            —
            
            
            —
            
            
            —
            
            
            (18,750
            )Net
                loss
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (2,707,668
            )
            
            (2,707,668
            )Balance
                at March 31, 2007
            53,836,771
            
            $
            53,836
            
            $
            107,479,531
            
            $
            4,527,417
            
            $
            1,074,620
            
            $
            (110,914,140
            )
            $
            2,221,264











See
      notes
      to financial statements










4














**MILLENNIUM
      CELL INC.**


**(A
      DEVELOPMENT STAGE ENTERPRISE)**


**NOTES
      TO FINANCIAL STATEMENTS**


**(Unaudited)**








**NOTE
      1—BASIS OF PRESENTATION**





The
      consolidated financial statements include the accounts of Millennium Cell Inc.
      and its wholly owned subsidiary, Gecko Energy Technologies, LLC, (“Gecko”).
      Gecko, a fuel cell technology company, was acquired by Millennium Cell Inc.
      on
      December 29, 2006. All inter-company transactions and accounts have been
      eliminated.





The
      accompanying unaudited consolidated financial statements have been prepared
      in
      accordance with U.S. generally accepted accounting principles for interim
      financial information and with the instructions to Form 10-Q and Article 10
      of
      Regulation S-X. Accordingly, they do not include all of the information and
      footnotes required by U.S. generally accepted accounting principles for complete
      financial statements. In the opinion of management, all known adjustments (which
      consist primarily of normal recurring adjustments) considered necessary for
      a
      fair presentation have been included. The interim statements should be read
      in
      conjunction with our Annual Report on Form 10-K for the year ended December
      31,
      2006.





**NOTE 2—NEW
      ACCOUNTING PROUNOUNCEMENTS**





In
      June
      2006, the Financial
      Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes — an interpretation of FASB
      Statement No. 109” (“FIN 48”). This interpretation increases the
      relevancy and comparability of financial reporting by clarifying the way
      companies account for uncertainty in income taxes. FIN 48 prescribes a
      consistent recognition threshold and measurement attribute, as well as clear
      criteria for subsequently recognizing, derecognizing and measuring such tax
      positions for financial statement purposes. The interpretation also requires
      expanded disclosure with respect to the uncertainty in income taxes. FIN 48
      is effective for fiscal years beginning after December 15, 2006. The
      adoption of this standard on January 1, 2007 did not have any impact on the
      Company’s consolidated financial statements.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair
      value, establishes a framework for measuring fair value in generally accepted
      accounting principles and expands disclosures about fair value measurements.
      SFAS 157 will be applied under other accounting principles that require or
      permit fair value measurements, as this is a relevant measurement attribute.
      This statement does not require any new fair value measurements. SFAS 157 is
      effective for fiscal years beginning after November 15, 2007 and interim periods
      within those fiscal years. The Company does not expect this statement to have
      a
      material effect on its consolidated financial statements.





**NOTE
      3—EARNINGS PER SHARE**





Basic
      earnings per share (“EPS”) are computed by dividing income available to common
      stockholders by the weighted average number of common shares actually
      outstanding for the period. Diluted EPS reflects the potential dilution that
      could occur if securities or other contracts to issue common stock were
      exercised or converted into common stock or resulted in the issuance of common
      stock that then shared in the earnings of the Company. All such securities
      were
      anti-dilutive for all periods presented.





**NOTE
      4—INCOME TAXES**




The
      Company adopted the provisions of Financial FIN 48 on January 1,
      2007.   FIN 48 is an interpretation of SFAS Statement No. 109,
“Accounting for Income Taxes” (SFAS No. 109), which clarifies the
      accounting for uncertainty in income taxes. FIN 48 prescribes a recognition
      threshold and measurement attribute for the financial statement recognition
      and
      measurement of a tax position taken or expected to be taken in a tax return.
      The
      interpretation requires that the Company recognize in the financial statements
      the impact of a tax position if that position is more likely than not of being
      sustained on audit, based on the technical merits of the position. FIN 48 also
      provides guidance on derecognition of a previously recognized tax position,
      classification, interest and penalties, accounting in interim periods and
      disclosures. The provisions of FIN 48 are effective beginning January 1,
      2007 with the cumulative effect of the change in accounting principle recorded
      as an adjustment to the opening balance of retained earnings.






5





The
      Company currently has a full valuation allowance against its net deferred tax
      assets and has not recognized any benefits from tax positions in earnings. 
Accordingly, the adoption of the provisions of FIN 48 did not have a material
      impact on the Company’s financial statements.





The
      Company will recognize potential interest and penalties related to income tax
      positions as a component of the Provision for Income Taxes (or alternatively
      -
“operating expenses”) on the consolidated statements of income in any future
      periods in which the Company must record a liability related to income tax
      positions. Since the Company has not recorded a liability related to income
      tax
      positions at March 31, 2007, there would be no impact to the Company’s
      effective tax rate. The Company does not anticipate that total unrecognized
      tax
      benefits will significantly change during the next twelve months.





The
      Company is no longer subject to federal or state income tax examinations for
      years prior to 2003.








**NOTE
      5—STOCK BASED COMPENSATION**





In
      July
      2000, the Company adopted the Amended and Restated 2000 Stock Option Plan and
      reserved 6,000,000 shares of common stock, which includes shares that are
      allotted under the 401(k) plan. The plan provides for the granting of the
      following types of awards: stock options, stock warrants, stock appreciation
      rights, restricted stock awards, performance unit awards and stock bonus awards.
      Stock awards issued under this plan have a life of ten years and generally
      vest
      ratably over three to five years. The specific terms and conditions of awards
      granted under the plan are specified in a written agreement between the Company
      and the participant.




*Stock
      Options*





The
      Company has awarded stock options to certain employees and directors. Stock
      options awarded to directors vest immediately. Stock options awarded to
      employees typically vest over three years. The Company did not issue options
      during the three months ended March 31, 2007.





Option
      activity for all outstanding options, vested and nonvested, from January 1,
      2007 through March 31, 2007 was as follows:





**Shares**
            
            **Weighted-
                Average Exercise****Price**
            
            **Weighted-
                Average Remaining Contractual Life(In****years)**
            
            **Aggregate
                Intrinsic****Value**Outstanding
                at December 31, 2006
            
            3,911,655
            
            $
            3.44
            
            
            —
            
            
            —Granted
            
            —
            
            
            —
            
            
            —
            
            
            —Exercised
            
            —
            
            
            —
            
            
            —
            
            
            —Forfeited
                and cancelled
            
            —
            
            
            —
            
            
            —
            
            
            —Outstanding
                at March 31, 2007
            
            3,911,655
            
            $
            3.44
            
            
            5.1
            
            $
            —Vested
                and expected to vest at March 31, 2007
            
            3,716,072
            
            $
            3.44
            
            
            5.1
            
            $
            —Exercisable
                at March 31, 2007
            
            3,669,867
            
            $
            3.67
            
            
            5.0
            
            $
            —





The
      aggregate intrinsic value in the table above represents the total intrinsic
      value (the difference between the closing stock price on the last trading day
      of
      the first quarter of 2007 and the exercise price, multiplied by the number
      of
      in-the-money options) that would have been received by the option holders had
      all option holders exercised their options on March 31, 2007. The intrinsic
      value changes based on the fair market value of the Company’s common stock.





As
      of
      March 31, 2007, there was $0.2 million of total unrecognized compensation
      expense related to stock options which is expected to be recognized over a
      weighted-average period of 1.8 years.






6





*Restricted
      Stock Awards*





Restricted
      stock awards will
      vest
      in five years, or earlier, upon meeting certain accelerated vesting criteria,
      as
      defined. Restricted
      stock awards are stock-based awards for which the employee or director does
      not
      have a vested right to the stock (“nonvested”) until the requisite service
      period has been rendered or the required financial performance factor has been
      reached for each pre-determined vesting date. Restricted stock awards are
      generally subject to forfeiture if the employee is not employed or a director
      is
      not a member of the board of directors on the vesting date. Prior to vesting,
      restricted stock awards have all of the rights of common stock (other than
      the
      right to sell or otherwise transfer). The fair value of restricted stock awards
      is based on the market price of the Company’s common stock on the grant date of
      the award.





During
      the three months ended March 31, 2007 and 2006, the Company issued 491,400
      and
      465,400 shares of restricted stock to employees with a fair market value of
      $471,744 and $763,256, respectively. These shares will vest in five years,
      or
      earlier, upon meeting certain accelerated vesting criteria, as defined. During
      the three months ended March 31, 2007 and 2006, the Company recorded $98,984
      and
      $69,500, respectively in non-cash charges for restricted stock issued to
      employees. The Company will recognize additional non-cash charges of $254,093
      in
      the remainder of 2007 and an additional $1,009,334 will be amortized through
      2011, or earlier if other accelerated vesting features are met.





Changes
      in nonvested restricted stock awards during the three months ended March 31,
      2007 were as follows:





**Number
                of**
              **Shares**
            
            **Weighted-**
              **Average
                Grant**
              **Date
                Fair**
              **Value**Nonvested
                at December 31, 2006
            
            736,480
            
            $
            1.88Granted
            
            491,400
            
            
            0.97Vested
            
            (50,000
            )
            
            1.50Forfeited
            
            (26,760
            )
            
            —Nonvested
                at March 31, 2007
            
            1,151,120
            
            $
            1.67





As
      of
      March 31, 2007, there was $1.2 million of unrecognized stock-based compensation
      expense related to nonvested restricted stock awards. This expense will be
      recognized as the shares vest.





*Non-Cash
      Charges*





The
      following is a breakdown by function of non-cash charges for stock-based awards
      for the three months ended March 31:





**2007**
            
            **2006**Product
                development and marketing
            $
            21,303
            
            $
            15,779General
                and administrative
            
            187,420
            
            
            169,170Research
                and development
            
            8,149
            
            
            5,637Total
            $
            216,872
            
            $
            190,586







**NOTE
      6—CONVERTIBLE DEBENTURES AND REDEEMABLE SERIES C PREFERRED
      STOCK**







*Amended Convertible
      Debentures*





On
      November 8, 2005, we issued a $2.4 million secured convertible debenture
      with a maturity date of September 30, 2007 (the “Amended Convertible
      Debentures”).  In accordance with EITF 00-27 (“Application of Issue No.
      98-5 to Certain Convertible Instruments”) and EITF 98-5 (“Accounting for
      Convertible Securities with Beneficial Conversion Features or Contingently
      Adjustable Conversion Ratios”), we record a Beneficial Conversion Feature
      (“BCF”) if the Amended Convertible Debentures are converted into common
      stock at a discount. In 2006, we converted $1.95 million of the Amended
      Convertible Debentures in exchange for 1,352,462 shares of our common stock
      and
      recorded a BCF charge of $136,500 associated with the conversions. In the first
      quarter of 2007, we converted $300,000 of the Amended Convertible
      Debentures in exchange for 305,148 shares of our common stock and recorded
      a BCF
      charge of $21,000 associated with the conversion.






7





*Redeemable
      Series C Preferred Stock*




On
      April
      25, 2005, the Company consummated a private placement financing transaction
      with
      seven institutional and accredited investors who paid $10 million for 10,000
      shares of redeemable Series C Preferred Stock (“Series C”). Each Series C share
      is initially convertible into 500 shares of our common stock, at any time,
      at an
      initial conversion price equal to $2 per share subject to adjustment based
      upon
      customary anti-dilution provisions, or a higher number of shares at a lower
      conversion price based upon the market price of our common stock during the
      ten
      trading days preceding conversion. The shares of Series C bear a 7% cumulative
      dividend payable quarterly in shares of common stock or cash, at the Company’s
      option and are junior to the Series A and Series B preferred stock in
      liquidation preference. The Series C is subject to mandatory redemption by
      the
      Company three years after issuance and can be settled in cash or with the
      Company’s common stock. As a result, the Series C is recorded as a liability in
      accordance with FAS 150 “Accounting for Certain Financial Instruments with
      Characteristics of both Liabilities and Equity ”).
      Additionally, the Company issued to the investors three-year warrants to
      purchase an aggregate of 1.25 million shares of the Company’s common stock at an
      exercise price equal to $2 per share, subject to adjustment based on customary
      antidilution protections. The warrants were valued at $1,021,928 at the date
      of
      issuance and were recorded as a discount to debt and as additional
      paid-in-capital on the balance sheet and are being amortized as interest expense
      throughout the term of the Series C or as they are converted, whichever comes
      first. During the three months ended March 31, 2007 and 2006, the Company
      recorded $92,181 and $54,227, respectively for the amortization of the
      discount.





On
      February 15, 2007, the Company entered into agreements with each holder of
      Series C pursuant to which the Company agreed, between the date of such
      agreement and June 15, 2007, to deliver Company Interim Conversion Election
      Notices (as such term is defined in the Certificate of Designations of the
      Series C) to convert 50% of such holder’s shares of Series C into shares of the
      Company’s common stock over a four month period at the Company’s option. As
      provided in the Certificate of Designations of the Series C, the closing sale
      price for the Company’s common stock on the date immediately preceding the date
      of each Company Interim Conversion Election Notice must be at least 114% in
      excess of the conversion price (if the applicable closing sale price is $1.25
      or
      less) or 108% in excess of the conversion price (if the applicable closing
      sale
      price is greater than $1.25), in order for the Company to cause such conversion.
      As a result, these conversions will result in BCF charges i n
      accordance with EITF 00-27 (“Application of Issue No. 98-5 to Certain
      Convertible Instruments”) and EITF 98-5 (“Accounting for Convertible Securities
      with Beneficial Conversion Features or Contingently Adjustable Conversion
      Ratios”) since the conversion price would be lower than the market price of the
      Company’s common stock on the date of the conversion. The Company recorded
      $56,000 in BCF expense related to conversions during the three months ended
      March 31, 2007.





Under
      the
      Series C purchase agreement, the Company is required to restrict funds for
      future dividends to be paid to Series C holders. As a result, these funds,
      which
      amounted to approximately $1,800,000 at issuance, were classified as restricted
      cash on the balance sheet. During the three months ended March 31, 2007, the
      Company paid $68,061 in quarterly dividend payments for the Series C. These
      dividends were recorded as interest expense since the Series C was recorded
      as a
      liability. According to the Series C purchase agreement, as dividends are issued
      or paid, and conversions are executed, the restricted cash is released ratably
      to our non-restricted cash accounts. During the three months ended March 31,
      2007, the Company converted $1,426,000 of the Series C in exchange for 1,535,062
      shares of the Company’s common stock. As of March 31, 2007, approximately $6.5
      million of the Series C have been converted into 4,212,857 shares of the
      Company’s common stock and as a result, $1,396,880 has been released from
      restricted cash to date.







*2007
      Convertible Debentures*





On
      February 16, 2007, the Company sold to six
      institutional and accredited investors $6,000,000 aggregate principal amount of unsecured convertible debentures due
      2009 (the “2007 Debentures”), and warrants to purchase an aggregate of 1,824,105
      shares of common stock at an exercise price of $1.14 per share. Interest accrues
      on the 2007 Debentures at the prime rate (currently 8.25%) and is payable on
      a
      quarterly basis in shares of common stock (assuming satisfaction of certain
      conditions) or, if the Company provides notice, it may elect to pay interest
      in
      cash. The 2007 Debentures are convertible into shares of common stock at an
      initial conversion price of $1.42 and, under certain circumstances, at a
      conversion price equal to 91% of the volume weighted average price of the common
      stock for the 10 consecutive trading days preceding the applicable notice of
      conversion.  The
      warrants were valued at $1,097,783 at the date of issuance.






8





The
      fair
      value of the warrants, together with the fair value of conversion features
      and
      certain other contingent liabilities associated with the 2007
      Debentures were recorded as a debt discount and as a liability under the caption
      “Debenture related liabilities” on the balance sheet upon issuance. The debt
      discount is amortized as interest expense throughout the term of the 2007
      Debentures or as they are converted, whichever comes first. The debenture
      related liabilities are marked to market each period end through interest
      expense. During the three months ended March 31, 2007, the Company recorded
      interest expense of $66,077 for the amortization of the discount and interest
      income of $14,986 for the marking to market of the debenture related
      liabilities.





In
      connection with this private sale, the Company also entered into a registration
      rights agreement with the investors under which the Company filed a registration
      statement on March 30, 2007 to register under the Securities Act the resale
      of
      the shares underlying the 2007 Debentures (including any shares issued as
      payment of interest) and the warrants. If the registration statement filed
      with
      the SEC is not effective by June 16, 2007, the Company agreed to pay the
      investors liquidated damages (for each 30 days period in which the Company
      fails
      to file the registration statement or such registration statement is not
      effective, as applicable) in an amount equal to 1.5% of the aggregate purchase
      price for the 2007 Debentures.





The
      2007
      Debentures also require that the Company maintain a ratio of unrestricted cash
      to debenture ratio each quarter and remain listed on a national exchange. Upon
      default of either of these covenants, the Company would be required to repay,
      in
      cash, 120% of the par value of the 2007 Debentures outstanding on the default
      date.








**NOTE
      7—SERIES A AND SERIES B PREFERRED STOCK**





*Series
      A and Series B Preferred Stock*





On
      April
      25, 2005, the Company consummated the first closing under a joint development
      arrangement with The Dow Chemical Company (“Dow”). In connection with the
      closing, the Company issued 155,724 shares of Series A Preferred Stock to Dow,
      each share of which was initially convertible into ten shares of the Company’s
      common stock. Currently, each share of Series A Preferred Stock is convertible
      into approximately ten shares of the Company’s common stock. As a result of the
      Series A issuance in exchange for services rendered by Dow in conjunction with
      the joint development arrangement, the Company recorded a non-cash charge of
      $2,413,722 as product development expense based on the market value of the
      underlying common stock as of April 25, 2005. The Series A has substantially
      the
      same rights of our common stock, therefore the Series A was valued based on
      the
      closing price of the Company’s common stock on April 25, 2005.





The
      purpose of the joint development arrangement is for the two companies to jointly
      develop portable power solutions based on the Company’s Hydrogen on Demand®
energy systems coupled with a fuel cell. The joint development arrangement
      has a
      three year term and each party may terminate the joint development arrangement
      under certain conditions. The joint development arrangement contemplates a
      series of four milestones designed to culminate in a commercially available
      product in military or consumer electronics applications. The milestones are
      focused on military and/or consumer electronics applications.





Upon
      the
      successful completion of each of the four milestones, Dow has a right, but
      not
      an obligation, to purchase a number of shares of the Company’s Series B
      Preferred Stock which is convertible into a number of shares of the Company’s
      common stock that could be purchased for $1,250,000 (based upon a purchase
      price
      equal to the volume weighted average price for the 30-trading day period prior
      to the date of issuance). If Dow purchases shares of the Company’s Series B
      Preferred Stock, Dow will also receive warrants to purchase a number of shares
      of the Company’s common stock that equals 25% of the number of shares of common
      stock issuable upon conversion of the Series B Preferred Stock. If Dow elects
      to
      purchase shares of the Company’s Series B Preferred Stock, the Company will also
      issue to Dow additional shares of Series A Preferred Stock at market value
      such
      that Dow will own a certain percentage of the Company’s capital stock as of the
      date of issuance as provided in the Dow Stock Purchase Agreement. If Dow elects
      not to purchase shares of the Company’s Series B Preferred Stock upon completion
      of any milestone, the Company will also issue to Dow a lesser number of
      additional shares of Series A Preferred Stock at market value.






9





On
      May 3,
      2006, the Company and Dow agreed that the first milestone under the joint
      development agreement was met. Dow
      elected to purchase 71,429 shares of Series B Preferred Stock for $1,250,000,
      and received detachable warrants to purchase 178,571 shares of the Company’s
      common stock with an exercise price of $2.10 per share which
      were recorded as a discount to Series B Preferred Stock for $159,227 based
      on
      the fair value of the warrants at the date of the issuance. The Series
      B
      Preferred Stock was initially convertible into ten shares of the Company’s
      common stock. Each share of Series B Preferred Stock is currently convertible
      into approximately sixteen shares of the Company’s common stock. The shares of
      Series B Preferred Stock bear a 6% cumulative dividend payable in shares of
      common stock or cash, at the Company’s option.  In
      accordance with the joint development arrangement and achievement of the first
      milestone, the Company also issued 138,150 shares of Series A Preferred Stock
      that were earned by Dow through human resource and intellectual property
      contributions toward achievement of the first milestone. As
      a
      result of the issuance of Series A Preferred Stock, the Company recorded a
      non-cash charge of $2,113,695 as product development expense based on the market
      value of the underlying common stock as of May 26, 2006.





The
      Company entered into an agreement with Dow whereby Dow waived anti-dilution
      adjustments for a period of one year in exchange for a reduction in their
      exercise price of warrants issued with the Series B from $2.10 to $1.25. As
      a
      result of this change, the Company recorded an adjustment of $16,153 as a
      charge to Series B Preferred Stock and increased additional paid-in capital.








**NOTE
      8—SUPPLEMENTAL CASH FLOW INFORMATION**





The
      Company issued 99,485 and 92,905 shares of common stock valued at $93,518 and
      $156,621 to employees as 401(k) Plan employer matching contributions during
      the
      first three months of 2007 and 2006, respectively.




The
      Company issued 491,400 and 465,400 shares of restricted common stock valued
      at
      $471,744 and $763,256 to employees as restricted stock during the three months
      ended March 31, 2007 and 2006, respectively. The Company also converted Series
      C
      Preferred Stock and Restated Convertible Debentures during the three months
      ended March 31, 2007. See note 5 for further details on these
      conversions.







**NOTE
      9—GECKO ENERGY TECHNOLOGIES, LLC.**




During
      the year ended December 31, 2006, the Company acquired Gecko’s remaining
      outstanding common stock (the “Acquisition”) that it did not already own. Prior
      to the Acquisition in 2006, the Company accounted for its investment in Gecko
      under the equity method of accounting. On the Acquisition date, Gecko was a
      developmental stage company, as defined, and the Acquisition was accounted
      for
      as an asset acquisition, which although similar to accounting for a business
      combination pursuant to SFAS No.
      141, “Business Combinations” (“SFAS 141”), no goodwill was recorded. During the
      three months ended March 31, 2007, the Company finalized the purchase accounting
      for the Acquisition which resulted in an increase of $146,000 to the intangibles
      acquired.  No other adjustments were required to finalize the purchase
      accounting.






**NOTE
      10—SUBSEQUENT EVENTS**





In
      April
      2007, the Company converted $600,000 of Series C into 728,857 shares of common
      stock. The Company has recorded a BCF charge of $42,000 associated with these
      conversions.




In
      April
      2007, the Company received a letter from The Nasdaq Stock Market (“ Nasdaq ”)
      notifying the Company that for 30 consecutive trading days prior to the date
      of
      the letter, the minimum bid price per share of the Company's listed securities
      had been below the minimum bid price per share of $1.00 as required for
      continued inclusion on the The Nasdaq Capital Market.





Nasdaq
      has provided the Company with 180 calendar days, or until October 22, 2007,
      to
      regain compliance. If, at anytime prior to October 22, 2007, the minimum bid
      price per share of the Company's common stock is $1.00 or more for a minimum
      of
      10 consecutive business days, the staff of Nasdaq will provide written
      notification that the Company complies with the Rule.





If
      the
      Company does not demonstrate compliance with the Rule by October 22, 2007,
      the
      staff of Nasdaq will determine whether the Company meets The Nasdaq Capital
      Market initial listing criteria, except for the bid price requirement. If the
      staff determines the Company meets the initial listing criteria, the staff
      will
      notify the Company that it has been granted an additional 180 calendar day
      compliance period. If the Company is not eligible for an additional compliance
      period, the staff will provide written notification that the Company’s
      securities will be delisted from The Nasdaq Capital Market. In that case, prior
      to any delisting, the Company may appeal the Nasdaq staff's determination to a
      Listing Qualifications Panel, which would conduct a hearing on the matter. 
If
      the Company’s securities are de-listed from the Nasdaq Capital Market, there may
      be a risk of default under certain of the Company’s outstanding financial
      instruments.







10








**Item
      2.** ***Management's Discussion and Analysis of Financial Condition and Results of
      Operations.***





The
      following discussion should be read in conjunction with the accompanying
      consolidated financial statements and
      notes
      thereto included within this report. In addition to historical information,
      this
      Form 10-Q and the following discussion contain forward-looking statements that
      reflect our plans, estimates, intentions, expectations and beliefs. See the
      discussion contained under the caption “Forward-Looking Statements” for more
      information. Our actual results could differ materially from those discussed
      in
      the forward-looking statements. The discussion below should be read in
      conjunction with the Company's Annual Report on Form 10-K for the fiscal year
      ended December 31, 2006 .





**General**





We
      were
      formed as a Delaware limited liability company on December 17, 1998, and
      organized and began operations on January 1, 1999 (inception date). We were
      converted into a Delaware corporation on April 25, 2000 when all of the
      outstanding equity interests of the limited liability company were converted
      into shares of common stock of the corporation. Unless otherwise indicated,
      all
      information that we present in this Form 10-Q for any date or period gives
      effect to the conversion as if it had occurred on that date or as of the
      beginning of that period and all references to common stock for periods before
      the conversion mean our issued and outstanding membership interests. On December
      29, 2006, we acquired Gecko Energy Technologies, LLC (“Gecko”), a fuel cell
      company.





**Overview**





We
      are
      engaged in the development of hydrogen battery technology for use primarily
      in
      portable electronic devices for the, military, medical, industrial and consumer
      markets. We are developing this technology in partnership with corporate and
      government entities. Hydrogen on Demand® is the trademarked name for our
      proprietary hydrogen energy storage and delivery technology. Our technology
      is
      based on the culmination of work reflected in more than 90 patents (granted
      or
      pending) that collectively provide us with a leading position in the system
      and
      fuel blend technology used to convert sodium borohydride to hydrogen energy
      for
      use in portable electronic device applications.





Our
      losses have resulted primarily from costs associated with product development
      and research and development activities as well as non-cash amortization of
      preferred stock and non-cash charges related to the issuance of stock options,
      restricted stock and warrants to employees and third parties. As a result of
      planned expenditures in the areas of research, product development and marketing
      and additional non-cash charges relating to employee stock awards, we expect
      to
      incur additional operating losses for the foreseeable future.





**Results
      of Operations**




*Three
      Months Ended March 31, 2007 versus Three Months Ended March 31,
      2006*




*Revenues.* Revenues
      for the three months ended March 31, 2007 were $67,700 compared to $69,882
      for
      the same period of 2006, a decrease of $2,182. While in the development stage,
      our revenues are expected to fluctuate from year to year with the timing of
      prototype development and design services.




In
      the
      near-term, revenues are expected to be derived substantially from catalyst
      sales, up-front license fees, research contracts with various federal, state
      and
      local agencies, collaborations with other companies, management services, and
      royalty payments or joint venture revenue from licensees or strategic
      partnerships. Revenues will be recognized in the period which technology is
      delivered, licensing revenues are earned, or as services are provided.





*Cost
      of Revenues.* Cost
      of
      revenues for the three months ended March 31, 2007 were $61,595 compared to
      $69,882 for the same period of 2006, a decrease of $8,287. Cost of revenues
      during the development stage represent the Product Development and Marketing
      expenses and Research and Development expenses associated with the revenue
      earned.





*Product
      Development and Marketing Expense* .
      Product
      development and marketing expenses for the three months ended March 31, 2007
      were $969,718 compared to $905,187 for the same period of 2006, an increase
      of
      $64,531. The expenses increased due to an increase in product development staff
      as compared to the same period last year.






11





*General
      and Administrative Expense* .
      General
      and administrative expenses for the three months ended March 31, 2007 were
      $795,016 compared to $1,015,625 for the same period of 2006, a decrease of
      $220,609. The decrease was mainly the result of the non-recurrence of
      professional fees associated with strategic and financial transactions closed
      in
      2006.





*Non-cash
      Charges* .
      Non-cash charges were $216,872 for the three months ended March 31, 2007
      compared to $190,586 for the same period of 2005, an increase of
      $26,286.





The
      following is a breakdown by function of non-cash charges for stock awards for
      the three months ended March 31:





**2006**
            
            **2005**Product
                development and marketing
            $
            21,303
            
            $
            15,779General
                and administrative
            
            187,420
            
            
            169,170Research
                and development
            
            8,149
            
            
            5,637Total
            $
            216,872
            
            $
            190,586





*Depreciation
      and Amortization* .
      Depreciation and amortization was $225,965 for the three months ended March
      31,
      2007 compared to $137,187 for the same period of 2006, an increase of $88,778.
      The increase reflects intangible assets resulting from the acquisition of Gecko
      on December 29, 2006.





*Research
      and Development Expense* .
      Research and development expenses were $101,227 for the three months ended
      March
      31, 2007 compared to $195,983 for the same period of 2006, a decrease of
      $94,756. The expenses decreased due to a decrease in research staff as compared
      to the same period last year.





*Interest
      Expense, net* .
      Net
      interest expense was $404,975 for the three months ended March 31, 2007 compared
      to $161,832 for the same period of 2006, an increase of $243,143. The increase
      was mainly attributable to more conversions of convertible securities which
      result in beneficial conversion feature charges, accelerated discount
      amortization, amortization of original issue discounts and issue costs on our
      2007 Debentures in the first quarter of 2007 compared to the same period in
      2006.





**Liquidity
      and Capital Resources**




*General*




Since
      our
      inception, we have financed our operations primarily through our initial public
      offering in August 2000 and private placements of equity and debt securities.
      The net proceeds from our initial public offering totaled approximately $35.9
      million and we generated net proceeds from private placement transactions in
      2002 and 2003 totaling $14.1 million. In 2004, we received net proceeds of
      approximately $9.4 million from a separate private placement transaction. In
      April 2005, we received net proceeds of approximately $9.6 million in a private
      placement of our redeemable Series C Preferred Stock. In May 2006, we received
      proceeds of $1.25 million in a private placement of Series B Preferred Stock.
      In
      February 2007, we received net proceeds of $5.95 million in a private placement
      transaction.





*Convertible
      Debentures*





On
      November 8, 2005, we issued a $2.4 million unsecured convertible debenture
      with a maturity date of September 30, 2007. In accordance with EITF 00-27
      (“Application of Issue No. 98-5 to Certain Convertible Instruments”) and EITF
      98-5 (“Accounting for Convertible Securities with Beneficial Conversion Features
      or Contingently Adjustable Conversion Ratios”), we record a Beneficial
      Conversion Feature (“BCF”) if the unsecured debentures are converted into common
      stock at a discount. In 2006, we converted $1.95 million of the unsecured
      debentures in exchange for 1,352,462 shares of our common stock and recorded
      a
      BCF charge of $136,500 associated with the conversions. In the first quarter
      of
      2007, we converted $300,000 of the unsecured debentures in exchange for 305,148
      shares of our common stock and recorded a BCF charge of $21,000 associated
      with
      the conversion.






12





*Redeemable
      Series C Preferred Stock*




On
      April
      25, 2005, we consummated a private placement financing transaction with seven
      institutional and accredited investors who paid $10 million for 10,000 shares
      of
      our redeemable Series C Preferred Stock (“Series C”). Each Series C share is
      initially convertible into 500 shares of our common stock, at any time, at
      an
      initial conversion price equal to $2 per share subject to adjustment based
      upon
      customary anti-dilution provisions, or a higher number of shares at a lower
      conversion price based upon the market price of our common stock during the
      ten
      trading days preceding conversion. The shares of Series C bear a 7% cumulative
      dividend payable quarterly in shares of common stock or cash, at our option
      and
      are junior to the Series A and Series B preferred stock in liquidation
      preference. The Series C is subject to mandatory redemption by the Company
      three
      years after issuance and can be settled in cash or with our common stock. As
      a
      result, the Series C is recorded as a liability in accordance with FAS 150
      “Accounting for Certain Financial Instruments with Characteristics of both
      Liabilities and Equity”). Additionally, we issued to the investors three-year
      warrants to purchase an aggregate of 1.25 million shares of our common stock
      at
      an exercise price equal to $2 per share, subject to adjustment based on
      customary antidilution protections. The warrants were valued at $1,021,928
      at
      the date of issuance and were recorded as a discount to debt and as additional
      paid-in-capital on the balance sheet and are being amortized as interest expense
      throughout the term of the Series C or as they are converted, whichever comes
      first. During the three months ended March 31, 2007 and 2006, we recorded
      $92,181 and $54,227, respectively for the amortization of the
      discount.





On
      February 15, 2007, we entered into agreements with each holder of Series C
      pursuant to which we agreed, between the date of such agreement and June 15,
      2007, to deliver Company Interim Conversion Election Notices (as such term
      is
      defined in the Certificate of Designations of the Series C) to convert 50%
      of
      such holder’s shares of Series C into shares of our common stock at our option.
      As provided in the Certificate of Designations of the Series C, the closing
      sale
      price for our common stock on the date immediately preceding the date of each
      Company Interim Conversion Election Notice must be at least 114% in excess
      of
      the conversion price (if the applicable closing sale price is $1.25 or less)
      or
      108% in excess of the conversion price (if the applicable closing sale price
      is
      greater than $1.25), in order for us to cause such conversion. As a result,
      these conversions will result in BCF charges i n
      accordance with EITF 00-27 (“Application of Issue No. 98-5 to Certain
      Convertible Instruments”) and EITF 98-5 (“Accounting for Convertible Securities
      with Beneficial Conversion Features or Contingently Adjustable Conversion
      Ratios”) since the conversion price would be lower than the market price of our
      common stock on the date of the conversion. We recorded $56,000 in BCF expense
      related to conversions during the three months ended March 31,
      2007.





Under
      the
      Series C purchase agreement, we are required to restrict funds for future
      dividends to be paid to Series C holders. As a result, these funds, which
      amounted to approximately $1,800,000 at issuance, were classified as restricted
      cash on the balance sheet. During the three months ended March 31, 2007, we
      paid
      $68,061 in satisfaction of the quarterly dividend payments for the Series C.
      These dividends were recorded as interest expense since the Series C was
      recorded as a liability. According to the Series C purchase agreement, as
      dividends are issued or paid, and conversions are executed, the restricted
      cash
      is released ratably to our non-restricted cash accounts. During the three months
      ended March 31, 2007, we converted $1,426,000 of the Series C in exchange for
      1,535,062 shares of our common stock. As of March 31, 2007, approximately $6.5
      million of the Series C have been converted into 4,212,857 shares of our common
      stock and we have released $1,396,880 from restricted cash for the conversions
      and dividends paid.





*Series
      A and Series B Preferred Stock*





On
      April
      25, 2005, we consummated the first closing under a joint development arrangement
      with The Dow Chemical Company (“Dow”). In connection with the closing, we issued
      155,724 shares of Series A Preferred Stock (“Series A”) to Dow, each share of
      which was initially convertible into ten shares of our common stock. Each share
      of Series A Preferred Stock is currently convertible into approximately ten
      shares of our common stock. As a result of the Series A issuance in exchange
      for
      services rendered by Dow in conjunction with the joint development arrangement,
      we recorded a non-cash charge of $2,413,722 as product development expense
      based
      on the market value of the underlying common stock as of April 25, 2005. The
      Series A has substantially the same rights of our common stock, therefore the
      Series A was valued based on the closing price of our common stock on April
      25,
      2005.






13





The
      purpose of the joint development arrangement is for the two companies to jointly
      develop portable power solutions based on our Hydrogen on Demand® energy systems
      coupled with a fuel cell. The joint development arrangement has a three-year
      term and each party may terminate the joint development arrangement under
      certain conditions. The joint development arrangement contemplates a series
      of
      four milestones designed to culminate in a commercially available product in
      military or consumer electronics applications. The milestones are focused on
      military and/or consumer electronics applications.





Upon
      the
      successful completion of each of the four milestones, Dow has a right, but
      not
      an obligation, to purchase a number of shares of our Series B Preferred Stock
      (“Series B”) which is convertible into a number of shares of our common stock
      that could be purchased for $1,250,000 (based upon a purchase price equal to
      the
      volume weighted average price for the 30-trading day period prior to the date
      of
      issuance). If Dow purchases shares of our Series B, Dow will also receive
      warrants to purchase a number of shares of our common stock that equals 25%
      of
      the number of shares of common stock issuable upon conversion of the Series
      B.
      If Dow elects to purchase shares of our Series B, we will also issue to Dow
      additional shares of Series A at market value such that Dow will own a certain
      percentage of our capital stock as of the date of issuance as provided in the
      Dow Stock Purchase Agreement. If Dow elects not to purchase shares of our Series
      B upon completion of any milestone, we will issue to Dow a lesser number of
      additional shares of Series A at market value.





On
      May 3,
      2006, the first milestone under the joint development agreement was met. Dow
      elected to purchase 71,429 shares of Series B for $1,250,000, and received
      detachable warrants to purchase 178,571 shares of our common stock with an
      exercise price of $2.10 per share which was recorded as a discount to Series
      B
      for $159,227 based on the fair value of the warrants at the date of the
      issuance. The Series
      B
      was initially convertible into ten shares of our common stock. Each share of
      the
      Series B Preferred Stock is currently convertible into approximately sixteen
      shares of the Company’s common stock. The shares of Series B bear a 6%
      cumulative dividend payable in shares of common stock or cash, at our option
      and
      are junior to Series A. In
      accordance with the joint development arrangement and achievement of the first
      milestone, we also issued 138,150 shares of Series A that were earned by Dow
      through human resource and intellectual property contributions toward
      achievement of the first milestone. As a result of the issuance of Series A,
      we
      recorded a non-cash charge of $2,113,695 as product development expense based
      on
      the market value of the underlying common stock as of May 26, 2006.





We
      entered into an agreement with Dow whereby Dow waived anti-dilution adjustments
      for a period of one year in exchange for a reduction in their exercise price
      of
      warrants issued with the Series B from $2.10 to $1.25. As a result of this
      change, we recorded an adjustment of $16,153 to Series B Preferred Stock and
      increased additional paid-in capital.





*Convertible
      Debentures*





On
      February 16, 2007, we sold to six
      institutional and accredited investors $6,000,000 aggregate principal amount of our unsecured convertible debentures
      due 2009 (“the 2007 Debentures”), and three year warrants to purchase an
      aggregate of 1,824,105 shares of common stock at an exercise price of $1.14
      per
      share. Interest accrues on the 2007 Debentures at the prime rate (currently
      8.25%) and is payable on a quarterly basis in shares of common stock (assuming
      the satisfaction of certain conditions) or, if we provide notice, we may elect
      to pay interest in cash. The 2007 Debentures are convertible into shares of
      our
      common stock at an initial conversion price of $1.42 and, under certain
      circumstances, at a conversion price equal to 91% of the volume weighted average
      price of the common stock for the 10 consecutive trading days preceding the
      applicable notice of conversion.  The
      warrants were valued at $1,097,783 at the date of issuance.





The
      fair
      value of the warrants, together with the fair value of conversion features
      and
      certain other contingent liabilities associated with the 2007 Debentures
      were recorded as a debt discount and as a liability under the caption “Debenture
      related liabilities” on the balance sheet upon issuance. The debt discount is
      amortized as interest expense throughout the term of the 2007 Debenture or
      as
      they are exercised, whichever comes first. The debenture related liabilities
      are
      marked to market each period end through interest expense. During the three
      months ended March 31, 2007, we recorded interest expense of $66,077 for the
      amortization of the discount and interest income of $14,986 for the marking
      to
      market of the debenture related liabilities.





In
      connection with this private sale, we also entered into a registration rights
      agreement with the investors under which the Company filed a registration
      statement on March 30, 2007 to register under the Securities Act the resale
      of
      the shares underlying the 2007 Debentures (including any shares issued as
      payment of interest) and the warrants. If the registration statement filed
      with
      the SEC is not effective by June 16, 2007, we agreed to pay the investors
      liquidated damages (for each 30 day period in which we fail to file the
      registration statement or such registration statement is not effective, as
      applicable) in an amount equal to 1.5% of the aggregate purchase price for
      the
      2007 Debentures.






14





The
      2007
      Debentures also require that we maintain a ratio of unrestricted cash to
      debenture ratio each quarter and remain listed on a national exchange. Upon
      default of either of these covenants, we would be required to repay, in cash,
      120% of the par value of the 2007 Debentures outstanding on the default
      date.





*Sources
      and Uses of Cash*





As
      of
      March 31, 2007, we had $8,021,023 in cash and cash equivalents and restricted
      cash of $1,025,711. Cash used in operations totaled $1,934,387 and
      $2,221 ,093 during
      the three months ended March 31, 2007 and 2006, respectively, and related to
      primarily funding our net operating losses.





Excluding
      changes in restricted cash, investing activities used cash of $148,047
      and $572,246 during
      the three months ended March 31, 2007 and 2006, respectively. The decrease
      in
      2007 from 2006 was directly related to our investment in Gecko. Restricted
      cash is comprised of $0.4 million as security on Series C Preferred dividends
      and $0.6 million of cash used for collateral as security deposit held by our
      landlord in connection with our amended lease agreement (see contractual
      obligations table below). These
      funds will not be available for use in operations until the letters of credit
      have been reduced or terminated. The $0.4 million of restricted cash related
      to
      the Series C Preferred will be available to us ratably as dividends are paid
      to
      the holders or as they are converted, whichever comes first.





*Off-Balance
      Sheet Arrangements*





We
      had no
      off-balance sheet arrangements as of March 31, 2007.





*Commitments
      and Contingencies*





In
      April
      2001, we amended our main operating lease to provide for additional space for
      our principal operating offices and laboratories. The amended lease will expire
      in 2008 and contains options to renew for an additional eight years and requires
      us to pay our allocated share of taxes and operating costs in addition to the
      annual base rent payment.





In
      connection with the amended lease agreement, we issued a letter of credit to
      the
      landlord for $588,972 in lieu of a cash security deposit. The letter of credit
      was collateralized with a portion of our cash and is classified as Restricted
      Cash. The funds used for collateral will not be available for use in operations.





Between
      January 1999 and April 2000, we received an aggregate of $227,522 from a
      recoverable grant award from the State of New Jersey Commission on Science
      and
      Technology. The funds were used to partially fund costs directly related to
      development of our technology. The recoverable grant is required to be repaid
      when we generate net sales in a fiscal year. The repayment obligation, which
      began in March 2001, ranges from 1% to 5% of net sales over a ten-year period.
      We are obligated to repay the unpaid amount of the original grant at the end
      of
      the ten-year period. As
      of
      March 31, 2007, we have repaid approximately $84,390.






15





Our
      contractual obligations are in the table outlined below:





**Payment
                due in fiscal years****2007****Contractual
                Obligations**
            
            **(nine
                months****Total**
            
            **remaining)**
            
            **2008**
            
            **2009**
            
            **2010**
            
            **2011**Operating
                lease - facility
            $
            807,183
            
            $
            363,233
            
            $
            443,950
            
            $
            —
            
            $
            —
            
            $
            —Refundable
                grant obligation
            
            143,132
            
            
            —
            
            
            —
            
            
            —
            
            
            143,132
            
            
            —Convertible
                unsecured debentures (1)
            
            149,988
            
            
            149,988
            
            
            —
            
            
            —
            
            
            —
            
            
            —Redeemable
                Series C Preferred Stock (1)(2)
            
            3,378,931
            
            
            1,689,466
            
            
            1,689,465
            
            
            —
            
            
            —
            
            
            —2007
                Debentures (1)
            
            6,000,000
            
            
            —
            
            
            —
            
            
            6,000,000
            
            
            —
            
            
            —Total
            $
            10,479,234
            
            $
            2,202,687
            
            $
            2,133,415
            
            $
            6,000,000
            
            $
            143,132
            
            $
            —





*(1)*  *Redeemable
      Series C Preferred Stock, Convertible Unsecured Debentures and 2007 Debentures
      are convertible into common stock or can be satisfied with cash.*


*(2)*  *$1,689,466
      of the Redeemable Series C Preferred Stock is required to be converted by June
      15, 2007 and the remainder is due in the first quarter of
      2008.*





We
      believe that, based upon our current cash and cash equivalents and our
      projection for the source and uses of our cash during the first quarter, we
      will
      have sufficient cash and cash equivalents to satisfy anticipated cash
      needs through the first half of 2008.  We may raise additional funds
      through public or private financing, collaborative relationships or other
      arrangements at any time.  Additional funding, if sought, may not be
      available or, if available, may be offered at terms not favorable to us.
      Further, any additional equity financing may be dilutive to stockholders, and
      debt financing, if available, may involve restrictive covenants. Our failure
      to
      raise capital when needed may harm our business and operating
      results.





**Discussion
      of Critical Accounting Policies**




In
      preparing our consolidated financial statements in accordance with United States
      generally accepted accounting principles, we are required to use judgment in
      making estimates and assumptions that affect


the
      amounts reported in our financial statements and related notes. We base our
      estimates on historical experience and on various other assumptions that are
      believed to be reasonable under the circumstances. These estimates form the
      basis for making judgments about the carrying value of assets and liabilities
      that are not readily apparent from other sources. Many of our critical
      accounting policies are subject to significant judgments and uncertainties
      which
      could potentially result in materially different results under different
      conditions and assumptions. Future events rarely develop exactly as forecast,
      and the best estimates routinely require adjustment. See Discussion of Critical
      Accounting Policies in Item 7. Management’s Discussion and Analysis of
      Financial Condition and Results of Operations of our Annual Report on
      Form 10-K for the year ended December 31, 2006.




**Recent
      Accounting Pronouncements**




See
      Note
      2 for more information related to new accounting pronouncements.





Item
      3.*Quantitative
      and Qualitative Disclosures about Market Risk.*





Market
      risk represents the risk of loss that may impact our financial position,
      operating results or cash flows due to changes in U.S. interest rates. This
      exposure is directly related to our normal operating activities. Our cash and
      cash equivalents are invested with high quality issuers and are generally of
      a
      short-term nature. As a result, we do not believe that near-term changes in
      interest rates will have a material effect on our future results of operations.





Our
      systems' ability to produce energy depends on the availability of sodium
      borohydride, which has a limited commercial use and is not manufactured in
      vast
      quantities. There are currently only two major manufacturers of sodium
      borohydride and there can be no assurance that the high cost of this specialty
      chemical will be reduced. Once we commence full operations in the future, we
      may
      need to enter into long-term supply contracts to protect against price increases
      of sodium borohydride. As a result, we may be subject to commodity price risk
      in
      the future and there can be no assurance that we will be able to enter into
      agreements to protect against such risk.






16





**Item
      4.** ***Controls
      and Procedures***





(a)
      Evaluation of Disclosure Controls and Procedures





Our
      management is responsible for establishing and maintaining a system
      of adequate internal
      and disclosure controls and procedures over
      our
      financial reporting. Such controls and procedures are designed
      to ensure that information required to be disclosed by us in the reports we
      file
      or submit under the Securities Exchange Act of 1934, is recorded, processed,
      summarized and reported on a timely basis, and that such information is
      accumulated and communicated to all
      members of our
      management, including our Chief Executive Officer and Chief Financial Officer,
      as appropriate, to allow timely decisions regarding required
      disclosure .





Our
      management, under the supervision and with the participation of our Chief
      Executive Officer and our Chief Financial Officer, has evaluated the
      effectiveness of our disclosure controls and procedures (as such term is defined
      in Rules 13a-15(e) or 15d-15(e)) under the Securities Exchange Act of 1934,
      as amended) as of the end of the period covered by this Quarterly Report. Based
      on such evaluation, our Chief Executive Officer and our Chief Financial Officer
      have concluded that, as of the evaluation date, our disclosure controls and
      procedures are effective in alerting them on a timely basis to material
      information relating to us required to be included in our reports filed or
      submitted under the Securities Exchange Act of 1934.




Our
      management, including our Chief Executive Officer and Chief Financial Officer,
      also conducted an evaluation of any changes in internal controls over financial
      reporting that occurred during the last fiscal quarter covered by this Quarterly
      Report. That evaluation did not identify any significant changes to the
      Company’s internal control over financial reporting that have materially
      affected, or are reasonably likely to materially affect, the Company’s internal
      control over financial reporting.





(b)
      Changes in Internal Controls





Since
      the
      evaluation date, there have not been any significant changes in our internal
      control over financial reporting or in other factors that could significantly
      affect our internal control over financial reporting.









17




**PART
      II**





**Item
      1.        Legal
      Proceedings.**





None.





**Item
      1A.     Risk Factors.**





There
      have been no material changes from the risk factors previously disclosed in
      our
      Annual Report on Form 10-K for the year ended December 31, 2006.





**Item
      2.** **Unregistered
      Sales of Equity Securities and Use of Proceeds.**




None.





**Item
      3.** **Defaults
      Upon Senior Securities.**





None.




**Item
      4.** **Submission
      of Matters to a Vote of Security Holders.**





None.





**Item
      5.** **Other
      Information.**





On
      May
      11, 2007, Millennium Cell Inc. (the “Company”) issued 281,481 shares of its
      common stock to four holders of the Company’s Series C2 Convertible Preferred
      Stock upon the Company’s conversion of 200 shares of such stock.




On
      May 8,
      2007, the Company issued an aggregate of 284,981 shares of its common stock
      to
      four holders of the Company’s Series C2 Convertible Preferred Stock upon the
      Company’s conversion of 200 shares of such stock.





The
      shares issued upon the conversions described above were issued to existing
      security holders and no commission or other remuneration was paid or given
      directly or indirectly for soliciting such conversions. Accordingly, the
      issuance of such shares of common stock was made pursuant to an exemption from
      registration contained in Section 3(a)(9) of the Securities Act of 1933, as
      amended.





**Item
      6.** **Exhibits**





10.1†
            —
            Letter
                Agreement between Millennium Cell Inc. and The Dow Chemical Company
                (incorporated by reference to Exhibit 10.1 to the Current Report
                on Form
                8-K filed with the SEC on February 7, 2007).10.2†
            —
            Securities
                Purchase Agreement, dated February 15, 2007, by and among the Company
                and
                the investors listed on the Schedule of Buyers attached thereto(incorporated
                by reference to Exhibit 10.1 to the Current Report on Form 8-K filed
                with
                the SEC on February 16, 2007).10.3†
            —
            Registration
                Rights Agreement, dated February 15, 2007, by and among the Company
                and
                the investors listed on the Schedule of Buyers attached thereto
                (incorporated by reference to Exhibit 10.2 to the Current Report
                on Form
                8-K filed with the SEC on February 16, 2007).10.4†
            —
            Voting
                Agreement dated February 15, 2007 by and among the Company and the
                stockholders signatory thereto (incorporated by reference to Exhibit
                10.3
                to the Current Report on Form 8-K filed with the SEC on February
                16,
                2007).10.5†
            —
            Form
                of letter agreement entered into by the Company and each holder of
                Series
                C2 Preferred Stock on February 15, 2007(incorporated
                by reference to Exhibit 10.1 to the Current Report on Form 8-K filed
                with
                the SEC on February 21, 2007).10.6†
            —
            Amendment
                to Unsecured Convertible Debentures of Millennium Cell Inc., between
                Millennium Cell Inc. and the Majority Holders, dated March 16, 2007
                (incorporated by reference to Exhibit 10.1 to the Current Report
                on Form
                8-K/A filed with the SEC on March 19, 2007).10.7†
            —
            Letter
                Agreement, between Millennium Cell Inc. and Adam P. Briggs, dated
                March
                13, 2007 (incorporated by reference to Exhibit 10.2 to the Current
                Report
                on Form 8-K/A filed with the SEC on March 19, 2007).31.1*
            —
            Certification
                of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley
                Act
                of 2002.31.2*
            —
            Certification
                of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley
                Act
                of 2002.32.1*
            —
            Certification
                of Chief Executive Officer and Chief Financial Officer pursuant to
                Section
                906 of Sarbanes-Oxley Act of 2002.





†  Previously
      filed.


*  Filed
      herewith.











18




**SIGNATURES**








Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned, thereunto
      duly authorized.





MILLENNIUM
      CELL INC.


(Registrant)






By:
      /s/ H. David Ramm


H.
      David
      Ramm


Chief
      Executive Officer





May
      15,
      2007





19